Tuesday, October 19, 2021

Could you structure your investments in property or cash in a more Inheritance Tax efficient manner?

By Krista Fox, tax partner, Streets Chartered Accountants

In the absence of careful planning, investment property and cash may be subject to Inheritance Tax (IHT) at 40%. Why give 40% of your accumulated wealth to the Government if you don’t have to?

Holdings of investment property and cash can potentially be structured such that the value of these assets benefit from an exemption from IHT (Business Property Relief (BPR)). This will ensure that IHT on death is mitigated and could also open up the opportunity for tax efficient lifetime planning.

Companies holding investments in property and/or cash

If you have a company that holds significant cash and/or property investments the value attributable to your shareholding may not qualify for 100% BPR.

However, with restructuring it is possible that you could qualify for BPR in full. Relevant planning may include establishing a money lending business that could, if appropriate, be operated alongside a property business. A money lending business can qualify for an exemption from BPR if certain criteria are met. The relevant business can include lending money to family members, related companies and partnerships.

Individuals holding investments in property and/or cash

Likewise, if you hold surplus cash and/or property investments personally or in partnership these assets are unlikely to qualify for any relief from IHT.

However, a company can be a tax efficient structure that can create opportunities for planning. For example, a company could be used to structure the holding of assets to benefit from 100% BPR that may not be available through direct ownership, perhaps using the principle of a money lending business as mentioned above. With this in mind companies are increasingly being used as a vehicle for families to structure the holding of their investments (a Family Investment Company).

Potential benefits of a Family Investment Company include:

  • A flexible structure defined by and under the control of family members
  • Offers asset protection
  • Tax efficient accumulation of wealth
  • A platform for tax efficient succession planning

So, with careful and sensible planning, IHT remains a ‘voluntary tax’.

The optimum approach will be tailored to each case and aligned to business and personal objectives.   Reviewing the structure of investments in property and cash, and considering the effective use of a company, could mitigate IHT. This should be considered in the context of a broader IHT strategy.

Should you be reviewing your IHT position?

For further guidance and advice please contact Krista Fox on 01522 551200 or email kfox@streetsweb.co.uk

A message from the Editor:

Thank you for reading this story on our news site - please take a moment to read this important message:

As you know, our aim is to bring you, the reader, an editorially led news site and magazine but journalism costs money and we rely on advertising, print and digital revenues to help to support them.

With the Covid-19 pandemic having a major impact on our industry as a whole, the advertising revenues we normally receive, which helps us cover the cost of our journalists and this website, have been drastically affected.

As such we need your help. If you can support our news sites/magazines with either a small donation of even £1, or a subscription to our magazine, which costs just £33.60 per year, (inc p&P and mailed direct to your door) your generosity will help us weather the storm and continue in our quest to deliver quality journalism.

As a subscriber, you will have unlimited access to our web site and magazine. You'll also be offered VIP invitations to our events, preferential rates to all our awards and get access to exclusive newsletters and content.

Just click here to subscribe and in the meantime may I wish you the very best.

Latest news

Related news

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.